US GDP Statistics and How to Use Them

5 Ways to Measure the U.S. Economy

Title reads: "Five ways to measure the U.S. economy"Image shows 5 icons with corresponding captions. The icons are a dollar bill and a few coins, a percentage sign over an zig-zagging, increasing arrow, a small house with a heart in it, a coin with a red arrow pointing downward, and a person with a ball and chain attached at the ankle and the ball has a dollar sign on it. The following captions are in the order of the icons just listed and correspond to them: "U.S. Nominal GDP: Measures economic output of the entire country. GDP Growth Rate: Measures year-over-year percent increase of economic output. GDP Per Capita: Estimates standard of living. Real GDP: Nominal GDP without inflation. Debt to GDP Ration: Determines whether annual income can pay off debt"

Theresa Chiechi / The Balance

Gross domestic product (GDP) measures a country's economic output. It is one of the most important economic indicators that can tell you how the U.S. economy is doing.

There are five GDP statistics that can give you a look into the health of the U.S. economy. Nominal GDP is the basic measure of economic output. Real GDP corrects for changes in prices. The GDP growth rate measures how fast the economy is growing (or contracting). Real GDP per capita describes the standard of living of people in the U.S. And the debt-to-GDP ratio describes whether America produces enough each year to pay off its national debt. The Bureau of Economic Analysis releases data on each of these measurements, with the most recent report discussing the third quarter of 2020, which you can see below. 

5 Ways to Measure the U.S. Economy
Measure Rate Explanation
Nominal GDP $21.2 trillion Measures economic output of the entire country
Real GDP $18.6 trillion GDP without inflation
GDP Growth Rate 33.4% Annualized rate that shows increase or decrease of economic output
Real GDP per Capita $56,290 Estimates standard of living
Debt-to-GDP Ratio 127% Determines whether annual income can pay off debt
Statistics for Q3 2020, Third Estimate

Nominal GDP 

U.S. gross domestic product was $21.2 trillion for the third quarter of 2020. U.S. GDP is the economic output of the entire country. It includes goods and services produced in the U.S. To find out the total economic output for all American citizens and companies, regardless of their geographic location, you'd want to look at U.S. gross national product, also known as gross national income.

There are four components of GDP:

  1. Personal consumption expenditures: All the goods and services produced for household use—it's usually almost 70% of total GDP
  2. Business investment: Goods and services purchased by the private business sector
  3. Government spending: Includes federal, state, and local governments
  4. Net exports: The dollar value of total exports minus total imports

Real GDP

Real GDP was $18.6 trillion for Q3 2020. This measure takes nominal GDP and strips out the effects of inflation. That's why it's usually lower than nominal GDP.

It's the best statistic to compare U.S. output year-over-year, so that's why the BEA uses it to calculate the GDP growth rate. It's also used to calculate GDP per capita. 

GDP Growth Rate

The current GDP rate is 33.4% as of Q3 2020. This indicator measures the annualized percentage increase in economic output since the last quarter. It's the best way to assess U.S. economic growth.   

If you look at GDP by year, you'll see this is a large increase in growth. The ideal growth rate is between 2% and 3%.

The economy contracted in the first half of 2020 because of the COVID-19 pandemic. This large increase comes after a record contraction in the second quarter of 2020.

GDP Per Capita

For Q3 2020, the U.S. real GDP per capita was $56,290. This indicator tells you the economic output by person and is the best estimate of the standard of living.

To compare the per capita GDP among countries, use purchasing power parity. It levels the playing field among them by comparing a basket of similar goods and taking out the effects of exchange rates.

Debt-to-GDP Ratio

The U.S. debt-to-GDP ratio for Q3 2020 was 127%. That's the total U.S. debt of $26.9 trillion at the end of September divided by the nominal GDP of $21.2 trillion.  Bond investors use this ratio to determine whether a country has enough income each year to pay off its debt. 

The pandemic has worsened the debt-to-GDP ratio. Government spending has increased to help households and businesses, while the recession has lowered economic output.

The U.S. debt-to-GDP ratio level is too high. The World Bank says that debt greater than 77% is past the "tipping point." That's when holders of the nation's debt worry that it won't be repaid. They demand higher interest rates to compensate for the additional risk.

When interest rates climb, economic growth slows. That makes it more difficult for the country to repay its debt. The U.S. has avoided this fate so far because it is one of the strongest economies in the world. 

Even when the economy was growing at a healthy rate of 2% to 3%, the federal government did not reduce the debt. It kept spending at an unsustainable level.

If you review the national debt by year, you'll see one other time the debt-to-GDP ratio was even close to the current level. The debt-to-GDP ratio rose to 119% in 1946 to pay for World War II. Following that, it remained safely below 77% until the 2008 financial crisis.  The combination of lower taxes and higher government spending pushed the debt-to-GDP ratio to unsafe levels, where it has remained.